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What Is Trade To Trade Stock

If you go to the notices’ section of the NSE, or the BSE website, you will see a list of firms that have been moved to the Trade-to-Trade segment, also known as the T2T segment. The decision to transfer shares to the T2T sector is often made by exchanges in cooperation with SEBI. The typical rationale for switching to T2T is to reduce unwarranted speculation in the stock.

SEBI is usually cautious of volatile equities since ordinary investors are often caught up in irregular price swings. So, what exactly is T2T stock trade? The Trade-To-Trade stocks (T2T) is a market sector in which each purchase or sale must result in mandatory delivery. This implies that intraday squaring of holdings on T2T equities is not authorised since it might promote speculation in these stocks.

What are the Requirements for Transferring Shares to the T2T Segment?

Some of the critical factors for moving shares into the T2T section are as follows:

Only equities that are not traded in the Futures and Options (F&O) section are evaluated for transfer to the T2T segment. This implies that equities accessible for F&O trading will not be moved to the T2T section. Shifting shares to the T2T section is generally done every two weeks, while the exchange chooses to move to and from the T2T sector every three months. The exchanges make this choice in cooperation with SEBI. The decision to move stock to the T2T sector will be made based on a combination of three separate factors, each of which will be utilised conditionally.

The first criterion for migrating to the T2T sector is a high Price-to-Earnings (P/E) ratio. On the BSE, if the Sensex P/E ratio is between 15 to 20 and the company has a P/E ratio more than 30, the stock will be considered for T2T. The P/E ratio will be calculated using the trailing EPS from the prior four quarters.
Price fluctuation is the second requirement. If the stock's price variance is roughly 25% more than the Sensex or the specific sectoral index to which it is benchmarked, the stock will be evaluated for T2T. The fluctuation must follow the same trend as the Sensex.
The third criterion is the stock's market capitalisation. If the market capitalization falls below Rs 500 crore, the company would be evaluated for a move to the T2T category. The goal here is to limit speculation in companies that, owing to their tiny size, they might be prone to price manipulation. IPOs are often exempt from these T2T conditions.

Remember that just as firms may be switched to the T2T sector, they can also be shifted back to the conventional section. This is part of the exchange's and the regulator's quarterly evaluation review.

What Happens When a Stock is Transferred to the T2T Segment?

When a stock is transferred to the T2T sector, only delivery transactions are authorised. Because intraday trading does not imply delivery of the stock, no intraday squaring will be authorised. Here are five things you should know about trading T2T stocks.

When you purchase a stock that is subject to T2T trading, you are required to take delivery of the stock. It means you must pay the stock value at the end of the day. Otherwise, the broker will be forced to sell your shares on the market on T+2 and credit the loss to you. The broker may also punish you.
It is crucial to confirm that you already have delivery in your Demat account when selling a T2T stock. After you sell the shares, you cannot purchase them again since intraday trading is not authorised in these T2T equities. If you are unable to deliver on the T+2 date, the item is auctioned off, and the losses, in addition to penalties, might be substantial.
Keep in mind that intraday stock market trading is not authorised in T2T stocks. Normally, broker trading algorithms will alert you to T2T stocks, but if you purchase or sell one, there is no way to cover your position. You must always accept or provide delivery.
STBT and BTST are extremely widespread in the brokerage sector. You purchase now and sell tomorrow, or you sell today and buy tomorrow. You are effectively taking an overnight risk on the stock in both circumstances. However, since all T2T deals must fundamentally result in delivery, there is no room for STBT or BTST trades.
Finally, T2T equities vary from Z-group stocks. While both of these stocks are merely dependent on delivery, Z group stocks have a broader fundamental issue in that they have not complied with the listing agreement. T2T equities outperform Z group stocks.

When a stock is transferred to the T2T section, the circuit filters are set to 5 per cent. This guarantees that the volatility in these equities is automatically reduced to a certain extent. That is, after all, the main reason for changing to the T2T sector.

Is Stock Market Trading in the Trade to Trade Segment (T2T) Risky?

If purchasers are interested in a stock, it is an excellent investment. This may be determined by looking at the stock volumes. The increased volume, on the other hand, might rise to conjecture. This resulted in the development of the Trade-To-Trade category. When a stock falls into this category, it becomes a highly safe investment. The explanation is simple: it protects investors from irregular price movements and speculation.

While the prerequisites for a demat account may seem overwhelming at first, you should be aware that the majority of depository participants enable you to open a demat account online. In reality, if your bank is a depository participant, you can typically establish a Demat account with a few clicks from their online site. If you are unsure about opening a Demat account online, most depository participants have agents who may come to you to fill out the form and collect papers. If you are solely interested in trading stocks and mutual funds, the papers for opening a Demat account are basically the same as those for opening a bank account.